BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 8/2014:
Banking in transition countries
John Bonin ()
, Iftekhar Hasan ()
and Paul Wachtel ()
Abstract: Modern banking institutions were virtually non-existent in
the planned economies of central Europe and the former Soviet Union. In the
early transition period, banking sectors began to develop during several
years of macroeconomic decline and turbulence accompanied by repeated bank
crises. However, governments in many transition countries learned from
these tumultuous experiences and eventually dealt successfully with the
accumulated bad loans and lack of strong bank regulation. In addition,
rapid progress in bank privatization and consolidation took place in the
late 1990s and early 2000s, usually with the participation of foreign
banks. By the mid 2000s the banking sectors in many transition countries
were dominated by foreign owners and were able to provide a wide range of
services. Credit growth resumed, sometimes too rapidly, particularly in the
form of lending to households. The global financial crisis put transition
banking to test. Countries that had expanded credit rapidly were vulnerable
to the macroeconomic shock and there was considerable concern that foreign
owners would reduce their funding to transition country subsidiaries.
However, the banking sectors turned out to be resilient, a strong
indication of the rapid progress in institutional development and
regulatory capabilities in the transition countries.
Keywords: transition banking; bank privatization; foreign banks; bank regulation; credit growth; (follow links to similar papers)
JEL-Codes: G21; O57; P27; (follow links to similar papers)
34 pages, March 18, 2014
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